Access to external finance: Theory and evidence on the impact of monetary policy and firm-specific characteristics |
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| Institution: | 1. Universitat Pompeu Fabra, Carrer de Ramon Trias Fargas, 25-27, 08005 Barcelona, Spain;2. Banco de España, Spain;3. Princeton University, USA;4. NBER, United States;5. ICREA-Universitat Pompeu Fabra, Spain;6. Barcelona GSE, Spain;7. CREI, Spain;8. Imperial College London, United Kingdom;9. CEPR, UK;1. Helmut-Schmidt-Universität, Holstenhofweg 85, 22043 Hamburg, Germany;2. Deutsche Bundesbank – Hannover, Georgsplatz 5, 30159 Hannover, Germany;3. Centre for Applied Macroeconomic Analysis, Australian National University, Canberra, Australia;4. Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany;5. Reserve Bank of New Zealand, 2 The Terrace, PO Box 2498, Wellington 6140, New Zealand;1. Federal Reserve Board of Governors, 20th and C St. NW, Washington, DC 20551, USA;2. Price School of Public Policy, University of Southern California, 650 Childs Way, Los Angeles, CA 90089, USA;3. Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106, USA;1. European Central Bank, Sonnemannstrasse 20, Frankfurt, 60314, Germany;2. Norwegian Business School, CAMP, and CEPR. Department of Economics, BI Norwegian Business School, Nydalsveien 37, Oslo, 0484, Norway |
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| Abstract: | This paper examines firms’ access to bank and market finance when allowance is made for differences in firm-specific characteristics. A theoretical model determines the characteristics such as size, risk and debt that would determine firms’ access to bank or market finance; these characteristics can result in greater (or lesser) tightening of credit when interest rates increase. An empirical evaluation of the predictions of the model is conducted on a large panel of UK manufacturing firms. We confirm that small, young and risky firms are more significantly affected by tight monetary conditions than large, old and secure firms. |
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